The Impact on IPO Performance of More Stringent Listing Rules with a Pre-Listing Earnings Requirement: Evidence from Hong Kong

17 Pages Posted: 13 Aug 2006

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Wai-yan Cheng

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Yuen-ching Tse

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Stephen Yan-Leung Cheung

City University of Hong Kong (CityUHK) - Department of Economics & Finance

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Abstract

This study considers the impact of a change to listing rules covering IPO performance in the Hong Kong stock market. The change, introduced in 1994, imposed a three-year prelisting earning requirement on new issues. The objective of this research is to screen out a subset of poor IPO performers. We find there is no significant difference in performance between IPOs before and after the regulatory change. We further divide our sample of IPOs registered before the regulatory change into two sub-samples: those that did and those that did not fulfil the earnings requirement. The result shows that there is no significant difference in performance between the two IPO sub-samples. This implies that the existence of pre-listing earnings does not guarantee good long-term IPO performance and the pre-listing earnings of new issues is not an effective screen for bad IPO performers. This study further analyses the rationale for rule change in the context of recent developments in the Hong Kong stock market and concludes that the rule change is part of the reform programme aimed at introducing a second board market for small companies and at attracting more China-related listings to the main board.

Suggested Citation

Cheng, Wai Yan and Tse, Yuen Ching and Cheung, Stephen Yan-Leung, The Impact on IPO Performance of More Stringent Listing Rules with a Pre-Listing Earnings Requirement: Evidence from Hong Kong. Journal of Business Finance & Accounting, Vol. 33, No. 5-6, pp. 868-884, June/July 2006, Available at SSRN: https://ssrn.com/abstract=924042 or http://dx.doi.org/10.1111/j.1468-5957.2006.00612.x

Wai Yan Cheng

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
(852)2194 2439 (Phone)
(852)2788 8842 (Fax)

HOME PAGE: http://roweb.cityu.edu.hk/researchreport/2002-2003/profile/1080F.htm

Yuen Ching Tse

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Stephen Yan-Leung Cheung (Contact Author)

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 2788 7960 (Phone)
+852 2788 8806 (Fax)

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